Paper type: Essay Pages: 3 (507 words)
How relevant do you think the Five-Forces Framework map is to identify environmental forces affecting the global pharmaceutical industry? Do these forces differ by industry sector, and where would you place the different sectors in the industry life-cycle? Porter’s five forces help identify their attractiveness in the industry in terms of the five competitive forces which are: the threat to entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between the competitors.
Where the forces are high, industries are not attractive to compete in. There will be too much competition and pressure to allow reasonable profits. In context to the global pharmaceutical industry the five forces framework map is very relevant in identifying the environmental forces affecting the group of firms producing the same product. The threat of entry: Barriers to entry are the factors that need to be overcome by the new entrance if they are to compete in the industry.
The threat of substitutes: Substitutes are products or services that offer similar benefits to industries products or services by different process. Substitute can reduce demand for a particular product as customers switch to alternatives. The simple risk of substitution puts a cap on the prices that can be charged in an industry. The power of the buyers: Buyers are the organizations immediate customers, where buyers are powerful they can demand cheap prices or products improvements liable to reduce profits. When buyers can easily switch between one supplier and another they have strong negotiating position. The power of the supplier: Suppliers are those who supply the organizations with what they need to produce the products. Where just a few producers dominate supply, suppliers have more power over buyers.
If it is expensive to move from one supplier to another the buyers become dependent and correspondingly weak. Competitive rivalry: Competitive rivals are organizations with similar products and services aimed at the same customer group. Where competitors are roughly of the equal size there is the danger of intensely rivalrous as one competitor attempts to gain dominance over others. In the pharmaceutical industry the barrier to entry is high as the cost of developing a new drug is at an estimated of $1 billion. The cost of all the projects that do not reach fruition are considered, it becomes clear that pharmaceutical R&D is a very high stakes game.
Only by securing a patent that can be defended against imitators can the value of all this R&D be recouped. The industry is subjected to rigorous regulatory scrutiny. Also, the government agencies usually examine all of the data to support the purity, stability, and safety of a new agent. The time taking for this averages 12 months. Until the new entrance has built up equivalent experience overtime it will tend to produce at a higher cost. Due to legal restraints on new entry from patents protection new firms will have difficulties entering new markets. In the pharmaceutical industry the threat of substitutes are minimal due to lack of sufficient alternatives.
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Barriers to Entry and Global Pharmaceutical Industry. (2017, Jan 06). Retrieved from https://studymoose.com/barriers-to-entry-and-global-pharmaceutical-industry-essay